Human Capital Taxes

Paper Aim

To enable candidates to apply the legislation and gain the detailed technical knowledge and professional skills to identify and resolve tax issues that arise for employers. The paper primarily covers Income Tax and National Insurance. Whilst the focus of the paper is primarily from the perspective of the employer rather than the employee, an understanding of the tax implications of employment income for the employee is required.

Candidates will be required to use technical knowledge and professional judgement to identify, explain and evaluate alternative tax treatments and to determine the appropriate solutions to taxation issues, giving due consideration to the needs of clients.

Prior Knowledge

The paper is aimed at students who have had two or three years’ practical experience working in human capital taxes, together with the appropriate level of private study and/or tuition.

Method of assessment

The Human Capital Taxes paper will be examined by a traditional paper based assessment. The examination paper will be 3 hours 15 minutes in length of which 15 minutes will be reading time. This examination will contain questions requiring the use of communication, judgement and evaluation skills as well as an ability to understand and apply technical skills to scenarios which may affect the taxation of employers.

The questions will be for 10, 15 or 20 marks and there will normally be five or six questions.

The only printed material that candidates may take into the exam hall is a copy of the legislation (see below). Candidates will be provided with tax tables.

At least 70% of the Human Capital Taxes paper will comprise material highlighted in the detailed syllabus grid as “core”. As inbound and outbound assignments are a significant part of the work of most human capital specialists, an international bias may be expected on this paper.

Employment law and company law surrounding shares and share schemes, so far as it is within the Law Computer Based Examination (CBE) syllabus, may be specifically examined on this paper.

The following learning outcomes should be read in conjunction with the detailed syllabus grid.

Learning Outcomes

Candidates will be able to analyse, evaluate and calculate the tax consequences of actions for employers in given scenarios.

This will involve advising and assisting clients in adhering to the requirements of tax statute and relevant regulations. In the assessment candidates may be required to demonstrate:

1) Communication skills

Communicate complex tax issues in a format appropriate to the recipient who may be an external client, a fellow professional, or an internal colleague.

Give advice which is appropriate, technically correct and within the law. Whilst ethics is not specifically examined in this paper, candidates are expected to produce solutions which meet the ethical guidance of the CIOT.

Interpret and communicate UK tax legislation and apply it to a scenario.

2) Technical skills

The detailed requirements are set out in the grid referred to in the syllabus section above. In summary, the key technical skills to be assessed on this paper are to be able to:

Understand, explain and calculate the tax liabilities arising for both the employer and the employee. This will include:

the scope and assessment of employment income including benefits in kind and expenses.

the operation of the PAYE system including benefit reporting.

the different classes of National Insurance applicable to an employee and employer

the DOTAS rules and/or anti-avoidance legislation may apply to a scenario

Understand, explain and calculate the charge to Capital Gains Tax on employees in relation to shares and options in their employing company, on their main residence and on the effect of residence and domicile.

Understand the different types of pension schemes, including unapproved and offshore schemes, and advise on the tax implications for employers and employees and on practical and regulatory issues for employers including auto-enrollment.

Understand the difference between employed and self-employed individuals and identify the taxation issues involved including alternative engagement situations including agency workers, IR35 and MSCs.

Understand and explain the different share schemes available to reward employees including the tax treatment of the various alternatives for employers and employees. This includes:

Income tax, National Insurance and PAYE obligations for the employer and employee relating to the award of shares or options and changes in the rights attaching to those shares.

Approved and unapproved schemes

Disposals of shares and options to the employer (including to an EBT and company purchase of own shares) and to third parties.

An understanding of other tax implications of employee share transactions including Capital Gains Tax for employees, Corporation Tax relief, VAT on costs and Stamp Duty.

Matters relating to the administration of schemes.

Understand and explain overseas tax matters including:

a. an individual’s residence and domicile status

the implications of individuals leaving and coming to the UK.

the impact of residence and domicile on UK Capital Gains Tax including the temporary non-residence rules

Be familiar with with the OECD double tax treaty in so far is it applies to employment matters. Be able to review and apply country specific double tax treaties to specific scenarios (extracts of relevant treaties will be provided in the exam paper).

Understand and explain the Construction Industry Scheme.

Understand statutory payments including SMP, SRP, SSP as well as AEOs and DEOs.

Understand and explain legal issues relating to employment and to shares and share schemes from the perspective of the employer (but only within the e-assessment syllabus).

Explain and apply significant cases and developments as they affect employers.

3) Tax planning skills

Candidates will be able to advise on alternative tax treatments to defer or minimise tax liabilities. Candidates will also be able to understand the interaction of taxes in given scenarios and to identify and discriminate between tax evasion and tax avoidance.